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Fitch: Insurers have Enormous Unrealized Losses

By The Prince ⋅ February 21, 2008 ⋅  Email This Post ⋅  Print This Post ⋅ Post a comment

The WSJ is out with an article about how much exposure life insurers have to subprime assets as estimated by Fitch.  The Prince is just smiling as the contagion from the subprime crisis just continues to be felt in new and unanticipated areas and ways.

Excerpt from the WSJ:

Fitch Ratings said U.S. life insurers have an estimated $7 billion to $8 billion in unrealized losses on subprime and Alt-A investments.

The credit rater said that amount totals 13% of exposure and 3% of total industry capital. Fitch expects the industry to have recorded losses of $2 billion to $3 billion in the fourth quarter.

Life insurers have been among the many investors burned by investing in securities backed by subprime or Alt-A mortgages. As delinquencies on those loans have surged, the securities’ prices have tumbled amid slack investor demand.

Fitch’s report comes on the heels of one of the biggest insurers, American International Group Inc., saying it will have to write down the value of financial instruments tied to mortgages by some $5 billion.

Fitch "continues to believe" the industry’s subprime and Alt-A exposure "is manageable." But it noted numerous subprime securities have seen their prices and credit ratings slump, particularly in the fourth quarter.

Although the firm anticipates further subprime deterioration, especially for loans issued in 2006 and 2007, "our analysis suggests that the industry is well positioned to withstand current market volatility given its focus on high investment-grade securities, relatively stable liability profile and positive cash flow." Fitch added the industry is "well capitalized."